There are so many different things to think about when putting together your will. People often think a will is as simple as “this person gets this, and that person gets that,” and then whatever is left can be divided among everyone else. As we’ve previously written about, planning your estate can really impact your family’s future.
In this post, we’ll look into some other ways you can plan your will while thinking about the tax implications your final wishes might have.
Making RRSP Contributions after Passing
There’s something about making RRSP contributions as part of your will that sounds weird; it sounds like it shouldn’t be possible. Although contributions can’t be made to a deceased person’s RRSP after the fact, contributions can be made to a surviving spouse or common-law partner’s RRSP in the year of death or during the first 60 days after the end of that year.
Your will should allow the executors to make a contribution, up to your RRSP deduction limit, to your spouse’s RRSP, so the amount can be claimed on your final tax and benefit return.
For more information about this practice, please visit the Canada Revenue Agency (CRA) page on contributing to your spouse’s RRSP.
Consequences of Transferring Property to Individuals Other Than a Spouse in Your Will
Transferring property among family members can lead to all sorts of frightening tax implications. For example, if you were to transfer your cottage to your brother or children in your will, your estate would be responsible for the taxes on the fair market value transfer. In that case, your estate would realize a capital gain and taxes would need to be paid even though the property remained within the family. This could result in other beneficiaries receiving a reduced share of the estate.
This also applies to any RRSPs that you’re designating to a specific individual, other than your spouse. The Income Tax Act permits transfers between spouses to take place at an adjusted cost base rather than at the fair market value.
Gifts to Family Members Who Aren’t Residents of Canada
It’s important to remember that every country has different tax laws, and since Canada is a country that was historically built on immigration, it’s very common for wills to include gifts which are left to family members who live outside of Canada. If you’re planning on leaving money or property to a family member who isn’t a resident of Canada, be aware that there could be tax implications in other countries. You, or your family member, might be required to disclose that information in order to avoid any consequences.
The Income Tax Act has many different scenarios that can impact your final tax return. At JMH&CO, we have studied these extensively, and we know how you can plan your estate to minimize the tax impact, and how you can ensure that everything for which you worked hard can stay within your family.
It’s also always important to remember that your life is continually evolving, and it is important to make sure that your will is continually evolving with it. We recommend looking over your will every 2-3 years, or any time a major life moment occurs.